Westpac lifts interest rates

• Westpac announced it will increase variable interest rates for owner occupied and residential investment property loans.

• All variable mortgage rates will increase by 14 basis points from September 19.

• The standard variable home loan rate for owner occupiers with principal and interest repayments will rise to 5.38%.

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Westpac is lifting variable interest rates for owner occupied and residential investment property loans, reflecting a rise in the bank's wholesale funding costs.

All the bank's variable mortgage rates will increase by 14 basis points from September 19 for both new and existing customers.

A short time ago, Westpac shares were up 3% to $28.90. The Australian dollar was sliding.

The smaller regional banks have all been adding basis points to their home loan rates.

Westpac, the first of the big four to lift home loan rates, has a 23% share of the Australian mortgage market.

Westpac's standard variable home loan rate for owner occupiers with principal and interest repayments will rise to 5.38%.

The 14 basis point increase will add $35 to the interest cost per month of an average home loan of $300,000. About two thirds (68%) of Westpac home loan customers are ahead on their repayments.

Those with interest-only payments will pay 5.97%.

The standard variable residential investment property loan will be 5.93% for those with principal and interest repayments and 6.44% for interest only repayments.

“This is a tough decision but we have a responsibility to price our mortgage products in a way that reflects the reality of our funding costs," says Westpac Consumer Bank Chief Executive George Frazis.

The bank bill swap rate, a key wholesale funding rate for mortgages, increased by about 25 basis points between February and March this year.

“We initially hoped that this increase would be temporary, and therefore we have incurred these costs over the last six months," he says.

"The rate changes announced today will not recover these costs."

Westpac now sees wholesale funding costs staying high for the foreseeable future.

“Given the step change in our funding costs, we have made what we believe is the appropriate decision: to balance the interests of all of our stakeholders by remaining both unquestionably strong and competitive in the market,” says Frazis.

The Australian dollar has tumbled on the news and now sits at 0.73 cents, having lost .4%.